Tag Archives: breach

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Contracts: Reading, Understanding & Breach

You have often heard that you should read a contract before you sign it. While this is true, the better advice is to make sure you understand the contract before you sign it. Many attorneys love to use fanciful legal jargon that can make it difficult to fully understand the terms and conditions in the contract. As a result, a breach of contract action is often the result of inadvertent failures because the party either failed to read or understand its obligations.

Breach of Contract

The most common type of breach of contract disputes is one that looks back at past actions or inactions. For example, a party failed to perform a duty required by the contract or the party took an action that is prohibited by the agreement. It is important to note that either action or inaction may be the basis of a breach of the contract lawsuit.

It is also possible for a breach to be forward-looking. This is often referred to as an “anticipatory breach” and it occurs when one of the parties either states its intention not to perform, or more frequently, does something to indicate that it will not perform its contractual obligations in the future. Although the time for performance has not arrived, the expression of the party’s intent not to perform can be sufficient to constitute a present breach of contract.

Responding to a Breach

If you are the non-breaching party, you should immediately consider how to minimize your damages. This is crucial because all parties to a contract have the duty to mitigate damages. In other words, you can’t sit back and let your damages mount if there are steps you can reasonably take to lessen them.

Before you suspend your own performance under the contract in response to the other party’s breach, you should have a knowledgeable business attorney review the agreement. It is important to determine whether the other party’s breach is a material or non-material breach. You should also gather and maintain all documentation and other evidence that the breach of contract occurred and your damages suffered as a result.

Litigating Breach of Contract Claims

Lawsuits can often be avoided with open communication. When a breach first occurs, having a clear discussion with the other party will often lead to you finding a way to cure the breach and move forward – saving everyone time and money.

If the dispute cannot be resolved, you will want to review the contract to determine if it has a dispute resolution clause which determines how the dispute will be resolved. You will also want to confer with your attorney regarding any clauses that govern what damages are recoverable in the event of a breach.

If you are entering into a contract and you need assistance understanding what the terms and conditions of the agreement actually mean, call Leslie S. Marell to schedule an initial consultation. She has been practicing business and commercial law for over 25 years. Leslie is established in private practice and has extensive legal experience counseling companies in the areas of business contracts and transactions, purchasing, sales, marketing, computer and technology law, employment law and day to day legal matters. Let us provide your company the advice and guidance you need.

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The Value of Non-Disclosure Agreements/Why you should Protect your Trade Secrets

Many times the most valuable asset a business has is its “idea.” That idea is the basis upon which your product/ service is successful. Whether that is an innovative product or a specialized service, it can be worth a substantial amount of money, especially if it meets needs that are not being met by others. It is essential that your company take the necessary precautions to safeguard your idea.

One effective means for protecting confidential information and trade secrets is to require employees, independent contractors, business partners and any other third-parties to sign a non-disclosure agreement. Also commonly referred to as a “confidentiality agreement,” this type of contract binds the third-party to keep your non-public data protected. It can limit the allowed uses of the protected information. Importantly, if the third-party breaches a non-disclosure agreement, your business is entitled to recover damages and other remedies at law.

What should a non-disclosure agreement include? Below are a few of the key provisions to include in a confidentiality agreement:

  • Identify protected information. The agreement should clearly set forth the data that is private and protected from being disclosed.
  • Permitted disclosures. The contract should specify the situations where the confidential information is allowed to be shared with others. It should identify the circumstances and the parties with whom disclosures are permitted. Common examples include allowing the protected information to be shared with attorneys, accountants, insurers, and other professionals deemed appropriate.
  • Legal remedies. In the event of a breach, any remedies available to the non-breaching party should be detailed in the contract.
  • Other terms. A non-disclosure agreement is similar to other types of contracts and should contain provisions setting forth the applicable law that governs, whether the contract is assignable, the requirement of mediation or arbitration to resolve disputes and other similar stipulations. You may also want to consider including language saying that a performance bond is not required. A bond is often used as a guaranty of a party’s reimbursement of costs incurred in case a default occurs. Waiving the requirement of a bond can save you a significant amount of money and time.

Failure to have non-disclosure agreements signed by third-parties can put your business in jeopardy. It is important to protect the special concept or trade secret that sets you apart from the competition.

To learn more about non-disclosure agreements or how we can assist you with other business-related matters, contact Leslie S. Marell today.

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Contractual Limitations of Liabilities

When your company is entering into a contractual relationship with another party, it is important to set forth what will happen if there is a breach of the agreement. A “breach” is the failure of a party to perform its duties or obligations under the contract. When a breach occurs, the contract should provide the breaching party’s liability for the damages incurred by the other party.

When a breach of contract occurs, there are three major types of contract damages or compensation available to the non-breaching party. In order to make the injured party “whole,” the contract may allow for a combination of damages. The three primary types of contract damages are:

  • Compensatory. The non-breaching party is entitled to recover its direct or actual damages incurred. Compensatory damages compensate the injured party directly for its loss.
  • Incidental. Incidental damages are expenses incurred by the non-breaching party as a result of the other party’s breach. This type of damages must be reasonably associated with, or related to, the injured party’s actual damages.
  • Consequential. As the name suggests, this type of damages includes those that do not flow directly and immediately from the breach, but from the consequences of the breach. They are more indirect in nature and they are sometimes referred to as “special damages.”

If you are the seller of a product, it is important to confer with legal counsel on ways to limit your liability in the contract. Failure to do so could result in you being liable for the above types of damages if you breach the contract. Let us review the transaction before it is executed and add the necessary language to limit the scope of your potential liability. The most common way this is done is to exclude your liability for incidental or consequential damages and specify that your maximum liability under the contract is limited to the purchase price of the product at issue in the deal.

To ensure that your contract provides you with the most protection from liability available, contact Leslie S. Marell to schedule an appointment. Our office is located in Torrance, California, but we proudly serve businesses of all sizes from all over the country.

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Sellers: Limiting Your Liability for Damages in Contracts

There are four major ways to reduce your risk and limit liability in contracts—disclaimers, limitation of liabilities, indemnification, and “Entire Agreement” clauses.  These are discussed in more detail below:

  1. Disclaimers. Shrewd contract negotiators live by the rule of disclaiming responsibility for anything beyond the specific commitments listed in the contract.  The only way a seller can disclaim implied contract warranties is by adding clear, specific language in BOLD, CAPITALIZED TYPE disclaiming the implied warranties.
  2. Limitation of Liabilities. Breaching parties are automatically liable to the other party for damages as a result of the breach unless the parties have specifically agreed to limit their liabilities.  Consider just what you want to limit.  For example, a Seller may negotiate that it will not be responsible to the Buyer for incidental or consequential damages.  As another example, you might also choose to negotiate your company’s maximum dollar limit on liability.
  3. Indemnification. Indemnification shifts the responsibility from one party to another in a contract.  Indemnity clauses can be drafted to protect your company from any acts, misrepresentations, wrongdoing, or omissions of the other party. 
  4. “Entire Agreement” Provisions. “Entire Agreement” or “integration” provisions in a contract limit the seller’s warranty liability to exactly what is written into the agreement.  In other words, adding this type of clause negates any other prior verbal agreements or commitments between the parties.  Put yet another way—if it is not in the agreement, it is not agreed to!

If you have questions about limiting liability in your business agreements, attorney Leslie S. Marell can help.  Leslie has more than 25 years of experience as in-house counsel and as a legal adviser working with businesses, business people, and business contracts, in the technology, manufacturing, software, and medical device industries.  She understands the real-world practicalities of what it takes to draft, review, and negotiate corporate contracts, and has presented her dynamic seminars to Fortune 500 companies and small to mid-sized businesses across the country.  Leslie specializes in helping contract analysts, project managers, and department leaders work better with their own internal legal departments and outside counsel.  To learn more about Leslie’s seminars, or get expert advice on contracting matters, contact Leslie at (310) 372-8663, or visit her online.